One of the most common questions in Canadian Tax is if inheritances are taxed. Many clients receive money from their parents, estates, stocks etc and are always afraid if they will receive a big tax bill in the end. In this article we will cover the different situations of inheritances and as well if they are taxed in Canada. Lets first determine what is an inheritance before we begin.
What is an inheritance?
An inheritance is any type of asset that an individual passes to a loved one or friend after he or she passes away. An inheritance maybe cash, investments such as stocks, assets such as jewelry, vehicles, art, and real estate. Some are known to be given away as early inheritances and some are given to their successors after death noted on a will etc.
Are inheritances taxed in Canada?
Unlike the U.S, Canada does not have inheritance tax. If you are the beneficiary of an asset through the estate, the estate will pay any tax outstanding before you inherit the asset. Asset also means money as well. You do not have to add inheritance to your tax return. However if you are receiving CPP, OAS, dividend income or other pension payments that are now being paid to you, this of course will be taxed as the income slip will then be in your name and you will have to claim on your return. This is only if you receive a T4ap etc.
Is there an estate tax?
Estate tax is the taxation of an asset. The Canada Revenue Agency does not tax the assets of an estate. Instead they require all taxes owing to be paid before the asset is transferred. Which covers you from not owing tax on your income tax return.
Is there a death tax in Canada?
No Canada as well does not have a death tax. Once again all taxes must be paid within the estate before the asset is released to the beneficiary.
How do Inheritance Tax Canada laws operate?
When a person dies, their executor will need to file their last return. For information on dates when the deadline is for this return see this our article on Canada Tax Deadlines. The tax return that is filed is considered as a deceased tax return. Any taxes that are owing from the persons income will be taken care of on the final tax return.
When the executor settles the deceased’s estate, they must ask the Canada Revenue Agency for a clearance letter. This letter confirms that all taxes have been paid. This letter must be confirmed before you begin to give out assets. It is important that you do get the certificate as you could be liable for any of the taxable amounts.
Accufile is here to help
Inheritances have a misconception usually as we are close to the tax laws of the USA. Inheritance Tax Canada laws are different in our country and our clients should consult with our accounting firm to ensure the right steps are taken. Accufile provides free consulting services for all of our clients. Take advantage of our online accountants and professional tax preparers. Personal Tax Returns you can find for only $25, Business Tax Returns for $75, and Corporate Tax Returns for $200. Take advantage of what we have to offer today!